Analysts and traders say technical momentum prompted further selling after gold broke below its 100-day moving average (around $1,359.) Also, anticipation of a possible announcement about the Fed's reduction in its bond buying program has added to the selloff.

"It's pre-emptive selling," said HSBC analyst Jim Steel. "No one knows what the Fed is going to do, but just in case, they're selling."

A change in sentiment may be underway as well. Money managers had been adding to their bullish bets on gold for four consecutive weeks, doubling their stake from early August through the first week in September.

Worries over a possible U.S. attack on Syria contributed to the "safe-haven" trade, boosting gold prices. Now that diplomacy has reduced the likelihood of a military strike,"what's really going to keep gold up?" asked COMEX floor trader Kevin Grady. "If you're long the market right now, it doesn't look like a good situation to be in."

Grady said if the Fed announces it is "tapering" its stimulus program, gold prices could fall to $1,200 an ounce.